As the world shifts toward a more sustainable future, addressing carbon emissions remains a top priority. Renewable energy sources are rapidly expanding and driving the decarbonization effort, yet certain industries, particularly those with hard-to-abate (HtA) emissions, require additional solutions.
HtA industries are sectors with high energy requirements that face significant challenges in reducing their carbon emissions due to the nature of their processes. In 2022, the three main HtA industries—cement, steel, and chemicals—contributed over 8 percent of the industrial sector’s total direct gross value added (GVA) for Iberia and provided 300,000 direct jobs.1 While they are significant contributors to the economy, these sectors are responsible for more than 50 percent of the total CO2 emissions from the Portuguese and Spanish industrial sectors.2
The EU Emissions Trading System (EU ETS) is a policy that requires companies to pay for their greenhouse gas emissions (see sidebar “The EU Emissions Trading System regulatory framework”).3 The current price of emitting one ton of CO2 under the EU ETS is in the range of €60 to €80/ton, but could reach €110 to €150/ton by 2030.4 Our analysis shows that this increase will significantly impact production costs in HtA sectors, potentially increasing costs by 15 to 17 percent in the chemicals industry, 35 to 40 percent in the steel industry, and nearly 95 percent in the cement industry by 2030 if companies maintain their current emission levels.
To remain competitive in this new context, companies are investing in decarbonizing their operations. However, conventional decarbonization levers, such as electrification, have limited applicability in these industries as most of their emissions are inherent to their industrial processes. For example, the cement industry relies on the calcination process for cement production. During calcination, calcium carbonate (CaCO3) is heated in a kiln to form lime (CaO), releasing CO2 as a by-product. This unavoidable CO2 generation makes these industries prime candidates for carbon capture, utilization, and storage (CCUS),5 which can help reduce CO2 emissions that are not addressable by other means.
In September 2024, Spain set a 2030 decarbonization goal through its National Integrated Energy and Climate Plan—the PNIEC 2023–2030—backed by the Climate Change Law.6 In the PNIEC, the government reported that 67.9 million tons per annum (Mtpa) of CO2 were emitted from industrial processes in 2020, including those from refineries.7 The target for 2030 is 50.7 Mtpa, reflecting an ambition to reduce emissions by 25 percent compared to 1990 levels, equivalent to a 17.2 Mtpa reduction in ten years.
Implementing key decarbonization levers, including electrification, energy efficiency, green hydrogen, and new feedstocks and processes, could achieve a reduction of 10 to 13 Mtpa CO2 by 2030.8 However, even with this reduction, Spain would still fall short of the 2030 target by 4 to 7 Mtpa. This gap could result in €560 million to €980 million per year in CO2 emission costs for the Spanish industrial sector.9
To avoid these costs, industries without decarbonization alternatives (including HtA industries) could adopt CCUS until other decarbonization options become available. Our analysis suggests that the cost of adopting CCUS would be similar to the price of emissions allowances under the EU ETS by 2030, creating a plausible business case for this technology. However, to maximize their decarbonization potential, CCUS facilities could be powered by renewable energy sources. CCUS could also be applicable to other industrial sectors, such as gas power generation (through combined cycle gas turbines [CCGTs]), though using green hydrogen currently remains a decarbonization alternative for CCGTs.
Iberia is currently lagging behind its European peers in CCUS—many countries have already initiated CCUS efforts, but Spain and Portugal have not yet taken this step. Today, there are over 40 CCUS projects in development across 13 countries in Europe.10 Developments in France are particularly relevant to Spain since France is accelerating its CCUS efforts despite not having significant national oil and gas reserves, which eliminates the possibility of using depleted fields for CO2 storage. In July 2024, France launched its updated CCUS strategy, targeting a CO2 emissions reduction of 4 to 8 Mtpa by 2030 and identifying potential onshore and offshore CO2 storage locations. This was shortly followed by the launch of a bidding process to participate in a contract for difference (CfD) support scheme for decarbonization projects in December 2024.11 Despite this progress, France is still in the early stage of an innovative decarbonization strategy, and Iberia has the opportunity to catch up to keep its HtA industry competitive given rising prices of emissions allowances in the EU ETS.
In this article, we draw on insights from McKinsey research and from members of our Industry and Energy Transition Initiative (see sidebar “The Iberian Industry and Energy Transition Initiative”) to explore how the Spanish industrial sector could decarbonize by embracing carbon capture and storage (CCS) and CCUS while limiting associated costs.
CCS is a well-known technology, but is undergoing significant innovation
CCS involves collecting CO2, typically from large emission points such as HtA industry plants or industrial facilities using fossil fuels or biomass. If not utilized on site, captured CO2 can be compressed and transported via pipeline, ship, rail, or truck, and then repurposed for various applications or injected into deep geological formations (such as saline formations or depleted oil and gas fields) for permanent storage. The CCS value chain is divided into three main phases: CO2 capture, transport, and storage.
CO2 capture
CO2 emissions can be captured from two primary sources: point source emissions (fossil or biogenic) and direct air capture (DAC) (see sidebar “What is biogenic CO2?”). Among these, point source emissions—mainly from industrial sources—are the most relevant to preserving industrial competitiveness (see sidebar “Despite amine-based capture being well established, new technologies are bringing greater opportunities for carbon capture”).
CO2 capture typically accounts for 60 to 70 percent of the total costs along the value chain. However, these costs vary widely by industry due to factors such as CO2 concentration, plant emission capacity, and capture technology. Additionally, capture is not feasible for all emissions in an industrial complex as some may be more easily abated with other methods (for example, low-temperature heat emissions can be eliminated with electric boilers or heat pumps), and because emissions may be scattered across multiple outlet points, making it uneconomic to capture them in their entirety. For instance, a standard 1 Mtpa facility in the European Union using amine-based capture in industries with flue streams with a high CO2 concentration (such as ethanol or ammonia production plants) typically has capture costs ranging between €14 and €21/ton (Exhibit 1). In contrast, power generation from coal or gas incurs much higher capture costs, exceeding €100/ton.
Regardless of the capture technology used, only a portion of a facility’s total emissions is considered capturable by CCS. This percentage varies by industry, with estimates at 90 percent for cement, 75 percent for chemicals, and 60 percent for metals.12
Transport
Transportation typically represents 15 to 20 percent of the total value chain costs for CCS. Of the different transportation options (pipelines, shipping, truck, and rail), pipelines are the primary and most cost-effective mode of CO2 transport. This mature technology has a long operational history in the oil and gas industry and is the most commonly used option for short to medium distances. However, pipeline transportation is still highly capital intensive, with capital expenditure accounting for approximately 80 to 90 percent of total pipeline costs, which range between €1 and €15/ton.13 Key cost drivers include:
- Transport distance: There is a relatively linear relationship between travel distance and cost. Increasing the distance from 50 to 100 kilometers (km) more than doubles the transportation cost per ton of CO2. In Spain, realistic pipeline lengths range from 100 to 150 km, resulting in transportation costs of €10 to €30/ton for a capacity of 0.5 to 1.0 Mtpa.
- Transport capacity: Transport costs rapidly decrease as capacity increases to approximately 5 Mtpa. Thereafter, transport economies of scale significantly decline. Doubling the capacity of a 50 km pipeline from 0.5 to 1.0 Mtpa can reduce costs by up to 40 percent.
- Transport type: Offshore pipeline transport costs are typically 1.3 times higher than onshore pipelines of the same capacity and distance because of more complex logistics, and the need for more resilient materials.
- Transport phase: Supercritical CO2 improves transportation economics by combining a gas’s low viscosity and high diffusivity with a liquid’s fluid properties.14
Shipping is gaining relevance as a method to connect the new CO2 hubs across Europe. However, it faces significant capacity limitations, with the average ship capable of transporting only approximately 30,000 tons of CO2. Base shipping costs range from €10 to €20/ton. However, additional costs associated with this mode of transport—such as liquefaction, loading and offloading, and buffer costs due to operational inefficiencies—can increase the total cost to between €20 and €30/ton. For long distances (over 500 km), shipping costs do not increase as much as pipeline costs and remain more economical than pipeline transport. Importantly, however, shipping often requires pipeline infrastructure (for example, onshore transportation), which would further increase costs. In general, shipping is regarded as an interim solution while pipeline infrastructure is not available.
Rail and truck transportation are typically only used to distribute CO2 to end markets because they have limited capacity and are the most expensive methods of transport, ranging from €30 to €65/ton.
Storage
Storage accounts for 15 to 20 percent of the total costs associated with CCS and can be performed onshore or offshore, with offshore storage costs typically higher. For example, onshore storage costs at saline aquifers range from €10 to €30/ton, while offshore storage can elevate costs to between €20 and €50/ton. Variations in costs largely depend on specific project characteristics, such as injection capacity and geological storage features, as well as financial constraints, particularly the weighted average cost of capital (WACC). In general, offshore storage has had greater traction than onshore storage due to greater public acceptance since offshore locations are further away from populated areas and pose fewer risks. In addition, most of Europe’s depleted oil and gas fields are located at sea.
Spain has the opportunity to develop a clear road map or to set specific CCS targets
The European Union is signaling strong support for CCS through the European Union Net-Zero Industry Act (NZIA) and the Industrial Carbon Management Strategy (ICMS).15 The NZIA sets an ambitious target of developing 50 Mtpa of carbon storage capacity by 2030 in the European Union.16 To achieve this, the act outlines specific measures for each member state, such as providing transparency about CO2 storage capacity data, establishing country-specific actions to support CCS in HtA sectors, and mandating European oil and gas producers to contribute to the development of CO2 storage infrastructure.17 The ICMS offers a comprehensive EU-wide strategy focused on CCS. Although it does not prescribe specific measures for adoption, it provides guidelines on developing carbon management practices, and aims to facilitate the capture of approximately 450 million tons of CO2 by 2050.18
The European Union has also developed a common regulatory framework through the EU CCS Directive and its implementation guidelines that govern carbon storage (including permitting, reporting, monitoring, and accountability) to ensure safe storage.19 Several countries, typically those with historically strong oil and gas industries, such as Norway and the United Kingdom, have gone beyond merely transposing these regulations by setting specific targets and developing tailored administrative processes to streamline CCS development. For instance, the United Kingdom, through the North Sea Transition Authority, has set a target to achieve a reduction of 20 to 30 Mtpa of CO2 emissions through carbon capture by 2030 and over 50 Mtpa by 2035.20 To reach this goal, the country has established a standardized and transparent permitting process through tender rounds and has already granted over 20 licenses for exploration and storage.21
Spain’s adoption of CCS is still at an early stage, so it could look to other countries that have adopted CCS processes to learn from as it develops its CCS capabilities. The PNIEC 2023–2030 does not include CCS as a key decarbonization lever, nor has it established targets or road maps for CCS implementation. Spain has transposed the European Carbon Capture and Storage Directive under Law 40/2010, but has yet to include a clear permitting process.22 The 40/2010 Law could apply, although it does not appear to have been put into practice yet. For small-scale projects, the permitting process has relied on a generic application through the 22/1973 Mining Law.23 This procedure has been used once on CCS licenses, specifically for the Hontomín Pilot Project, which took about eight years to complete.24
Overall, a clearer regulatory framework could help create more certainty around CCS to avoid slowing the development of the technology in Spain and thus affecting the competitiveness of the HtA industry.
Addressing challenges comes with its ups and downs. For example, Spain encountered difficulties with the Castor gas storage project, located 20 km off the coast of Vinaròs (Castellón), which triggered seismic activity associated with the injection of natural gas in the early stages of operation.25 On the other hand, Spain has experienced various successful gas storage projects spanning the past 30 years. These efforts have been led by Enagás, which has been managing the extraction and injection operations of three natural gas storage sites, both onshore and offshore: La Gaviota in Bizkaia, Serrablo in Huesca, and Yela in Guadalajara.26
More specifically, in the CO2 space, numerous projects in Europe (particularly the Sleipner and Snøhvit projects) and the United States demonstrate the potential for safe injection and storage. The Sleipner project has been injecting CO2 into the North Sea since 1996, with nearly one million tons injected annually.27 Additionally, Sleipner represents a one-of-a-kind example of data sharing, as all operational and monitoring data were made available to the scientific community. The safety of CO2 storage relies on careful site selection in terms of geological context, preoperational characterization of safety conditions, baseline studies, and operational planning.
Incentives play a crucial role in the development of CCS hubs
European authorities have developed multiple mechanisms to promote CCUS projects and have established carbon pricing that penalizes CO2 emissions.
Direct funding
The European Union provides financial support to CCS projects through grants, such as (Exhibit 2):
- €140 billion has been made available in direct grant subsidies for various initiatives. This includes CCUS, which has already received €4 billion in funding.28
- Horizon Europe has made €95.5 billion available for allocation between 2021 and 2027, with about €630.0 million made available in 2025 for climate, energy, and mobility projects, which could be used for CCS projects.29
- The Innovation Fund is estimated to allocate €40.0 billion between 2020 and 2030 for decarbonization projects, with €3.1 billion already allocated to CCUS projects.30 This amount is contingent on the carbon price, which is used to monetize CO2 allowances from the EU ETS to fund the program.
- The Connecting Europe Facility-Energy (CEF-E) has a budget of approximately €6 billion available between 2021 and 2027 to help the transition toward clean energy.31
Several European countries are already receiving these grants. For example, as part of the Longship project in Norway, Northern Lights has received €131 million from the CEF-E to develop its transport and storage network.32 On top of CEF-E funding, the Norwegian government provided €1.7 billion to cover the remaining CCS costs from the Longship project, facilitating the development of one of the largest CCS hubs in Europe to date.33
Other relevant CCS projects getting funding from the CEF-E include Porthos, which has received grants worth €108.5 million, and Aramis, which has received €124.0 million, both in the Netherlands.34
In Spain, the TarraCO2-Storage project, led by Repsol, was recently selected by the European Commission to receive €205 million in funding from the Innovation Fund.35 TarraCO2-Storage plans to develop offshore storage of CO2 near Tarragona, which will help decarbonize the local HtA industry, including one of the largest petrochemical complexes in the south of Europe. Currently, the project is still in the development phase pending permission to evaluate the technical viability.
Revenue assurance
Some countries ensure project income stability, despite fluctuations in CO2 prices, through CfDs. These contracts compensate companies for the price difference between producing a product using decarbonization technology (contract price) and producing the same product using traditional carbon-intensive methods. This compensation guarantees a minimum price for the CO2 captured so that CCS revenue is protected from EU ETS price volatility. While the European Union and national governments can participate in CfD schemes, only national governments are currently actively involved. These contracts may be carbon based, where the reference price is the cost of CO2 emissions (for example, the price of ETS emission allowances), or product based, where the reference price is the cost of producing an output with the standard grey technology (for example, cement production without CCS).
Several European countries, such as Denmark, Germany, the Netherlands, and, since December 2024, France, have already implemented CfD programs to support decarbonization efforts.36 For example, between 2020 and 2024, the Netherlands set aside a budget of over €42 billion for CfDs to fund several different renewable energy and low-carbon technology projects, including CCUS.37 In September 2024, the country also initiated its annual tender process through the Netherlands Enterprise Agency with a budget of €11.5 billion.38
Project promotion
Some countries are actively engaging in projects through public companies while inviting the participation of private sector leadership. For example, the Netherlands initiated CCS development through the Porthos project, which involved significant public participation. The project was led by a joint venture of three public entities: the Port of Rotterdam Authority, Energie Beheer Nederland B.V. (EBN), and N.V. Nederlandse Gasunie.39 Subsequently, the Aramis project was also launched in the country, primarily driven by private sector players (TotalEnergies and Shell), with only partial public involvement and utilizing part of Porthos’ infrastructure.40 Furthermore, Porthos secured direct funding from the Netherlands government in 2018 and the European Commission in 2019, along with revenue assurance from the Renewable Energy Production Incentive Scheme (SDE++) in 2021.41 Projects such as these, which are largely backed by governments, seek to accelerate the rollout of CCS by signaling large-scale infrastructure investment decisions to key value chain stakeholders (emitters, operators, funding institutions, and construction companies) and synchronizing their involvement.
Liability insurance
Some countries provide leakage risk coverage to transport and storage operators in case CO2 escapes from the storage facility and enters the atmosphere. Based on the EU CCS Directive, the project developer is operationally and financially responsible for the stored CO2 for at least the first 20 years after storage closure.42 After this period, the country’s government assumes liability and responsibility for monitoring, while the developer is required to contribute to the anticipated costs of monitoring for an additional 30 years. The responsibility for CO2 leakage encompasses economic, environmental, and legal liabilities, potentially requiring the liable party to offset CO2 leaks with allowances and face additional penalties.
A successful CCS project requires a cohesive operating model
Most recent CCS projects, particularly in Europe, have adopted hub models with substantial government involvement to ensure regulatory compliance and financial support (see sidebar “Operating models for CCS projects”).43
A country’s government plays a pivotal role in the development of CCS, particularly by acting as the lead coordinator for the private sector. Without active government involvement, the private sector can struggle to commit to large-scale CCUS initiatives due to high costs and the need for shared infrastructure that individual companies cannot easily invest in independently. In Norway, for example, the Northern Lights project is coordinated by Gassnova, a public entity. Gassnova participated in the feasibility studies in 2016 and completed the front-end engineering and design (FEED) studies for the CO2 storage project in September 2019.44 Additionally, it oversees projects on behalf of the government and acts as the coordinator for schedules and deliveries of project partners. At the operational level, through Equinor (a state-owned company), the government also plays a leading role in the development and operations of CO2 transport and storage infrastructure.
Iberia is well placed to adopt CCS for HtA decarbonization
Iberia’s large potential storage capacity and concentration of industrial clusters make it a suitable region for CCS for HtA decarbonization. As of 2021, Iberia is home to over 900 emission plants registered under the EU ETS, collectively emitting more than 80 Mtpa of CO2 (Exhibit 3).
These emission plants are grouped into 16 main industrial clusters.1 Over 25 million tons of CO2 emissions are classified as HtA in the region, potentially making the Iberian Peninsula ideal for CCS solutions.
Most clusters are strategically aligned with potential storage sites, both onshore and offshore, although the feasibility of storage remains uncertain.
In Spain, the Ministry of Industry has identified 103 potential onshore storage locations, including about 35 facilities with more than 100 million tons of capacity.46 These facilities could potentially offer an estimated 20 gigatons (Gt) of total onshore storage, although estimating the actual capacity more precisely would require more detailed analyses to be conducted.
Portugal has an estimated potential CO2 storage capacity of at least 7 Gt, with over 95 percent of this capacity located along the coast, thereby offering limited options for inland industries.47 The primary storage regions are in the Lusitanian Basin, encompassing the Aveiro and Coimbra clusters, which together emit approximately 7 Mtpa CO2. Storage around the Lisbon cluster is limited, as current mapping indicates that the Lisbon area can support only 0.3 Mtpa of CO2 storage. However, the Lisbon cluster emits 2.7 Mtpa from HtA industries, accounting for more than 50 percent of the total emissions from these industries in Portugal.
If local storage in Iberia is not approved, shipping to the North Sea could be the only alternative. However, our analysis shows that associated transport and storage costs would be 35 to 40 percent higher than local storage, increasing total CCUS costs by €60/ton and potentially undermining the business case for local emitters.48
The three most significant emission clusters in Iberia—Asturias, Barcelona–Tarragona, and Cantabria–Basque Country—all possess strong potential for establishing a CCS hub (Exhibit 4). These clusters show significant differences in emission concentrations, industry types, and transport networks, resulting in cost variations for CCS of up to €40/ton CO2. Furthermore, CCS cost estimation is complicated by the fact that implementation is not expected until at least 2030, making it uncertain which entities will be emitting at that time.
Below, we explore the cost estimates of each of these potential hubs. For more information on the analysis, see sidebar “Our analysis.”
Asturias stands out as the most cost-effective hub, primarily due to the high concentration of emissions
Asturias is the largest emissions cluster in the region, producing over 14 Mtpa CO2, of which approximately 5 Mtpa are classified as HtA.49 For this cluster, offshore storage emerges as the most viable alternative, as potential onshore storage is too far away from the primary emitters to be viable and international storage options (the North Sea) are significantly more expensive.
A potential CCS hub could be established involving three major emitters: the ArcelorMittal plant, which has an HtA capacity of approximately 3.2 Mtpa, and two cement plants located in Gijón and Oviedo, each with an HtA capacity of 0.5 Mtpa.50 Together, these facilities could capture and store a total of 4.2 Mtpa of CO2 in a local offshore storage site near the coast of Gijón. However, the success of this cluster would rely significantly on ArcelorMittal’s decarbonization strategy—the company has reported that it is unsure about the viability of producing green steel with hydrogen.51
The estimated cost of capturing CO2 from these facilities averages between €85 and €100/ton.52 However, individual costs vary by approximately 20 percent, with the ArcelorMittal plant benefiting from economies of scale, resulting in estimated costs of €80 to €95/ton. In contrast, the two cement factories are expected to incur higher capture costs, ranging from €100 to €115/ton.
Transportation would involve more than 170 km of onshore and offshore pipelines. With compression, the transport cost would be around €15 to €20/ton. The offshore storage near Gijón is estimated to cost between €20 and €40/ton, based on standard assumptions (for example, WACC at 10 percent and approximately 4 Mtpa of CO2). Therefore, the total cost for the transport and storage network is projected to be between €35 and €60/ton, resulting in a total CCS cost of €120 to €160/ton CO2.
According to our analysis, the total costs of the Asturias hub are estimated to be between €13 billion and €17 billion for a 25-year project abating more than 4 Mtpa CO2, with capital expenditure amounting to between €8 billion and €10 billion. The EU ETS will directly impact the potential funding gap of the project. If we consider the potential emissions of the energy required to run the capture facility, the cost of CCS per abated ton would rise to €140 to €190 per abated ton CO2. Thus, if CO2 prices reached €140/ton by 2030, the funding gap would only be around €3 billion, or 20 percent of the total investment.
The Barcelona–Tarragona hub could store 2.9 million tons of CO2 from five cement and chemical plants
The Barcelona–Tarragona hub emits over 11.0 Mtpa CO2, including 4.7 Mtpa of HtA emissions. The emitters are concentrated in two main areas, Barcelona and Tarragona, with a strong presence of HtA industries, primarily cement and chemicals. Potential onshore storage, though with limited capacity, has been identified in the southern part of Tarragona, but Barcelona has no closer alternatives. International storage, in this case, may be challenging and expensive to rely on, as transport routes to the North Sea are significantly longer and most Mediterranean CCS hubs are still in the early stages of development.
The most advanced Mediterranean hub, Ravenna, began operations in September 2024 with a storage capacity of only 25,000 tons of CO2 per year.53 Although the capacity is expected to increase to 4 Mtpa by 2030, a significant portion of this capacity is already committed.54 Therefore, the most promising storage option for the Barcelona–Tarragona cluster would be offshore storage proposed at TarraCO2, which has already been allocated €205 million in funding from the European Union’s Innovation Fund.55
A potential CCS hub in this region could encompass five emitters from the chemical and cement industries, primarily located around Tarragona. The main chemical and cement plants in the region are estimated to emit around 0.7 Mtpa of HtA emissions, benefiting from certain economies of scale in carbon capture systems. Collectively, the hub could capture nearly 3 Mtpa CO2, with an average capture cost of €90 to €105/ton.56
Connecting all five theoretical emitters would require more than 210 km of pipeline, resulting in a transportation cost of approximately €20 to €25/ton CO2. Assuming storage costs of €20 to €40/ton for 3 Mtpa and 10 percent WACC, the overall cost for the transport and storage network would scale to €40 to €65/ton. The total CCS costs, ranging from €130 to €170/ton, would result in a total cost (including capital expenditure and operating expenditure) of €10 billion to €13 billion for a 25-year project, with capital expenditure amounting to between €6 billion to €8 billion. Adjusting CCS costs to be comparable with EU ETS carbon prices (as explained in the Asturias hub section) would result in €150 to €200 per abated ton of CO2. Therefore, the implied funding gap with EU ETS prices of €50/ton CO2 would be between €8 billion and €10 billion, but it would decrease to €2 billion to €3 billion if carbon prices reached €140/ton CO2, representing about 25 percent of the total costs.
The Cantabria–Basque Country hub is less cost-effective due to highly dispersed emitters
The Cantabria–Basque Country hub emits around 11.0 Mtpa CO2, with approximately 3.5 Mtpa classified as HtA. The cement industry accounts for 70 percent of the HtA emissions from the largest emitters in this cluster. The presence of multiple emission points, each with limited emission capacity (most below 0.4 Mtpa), considerably increases the complexity and costs for this hub.
The most cost-effective solution involves a potential onshore storage site near Vitoria capable of handling the hub’s long-term emissions. In contrast, local offshore storage near Bilbao would require €45 to €70/ton CO2 for transport and storage, resulting in over 50 percent higher costs and a more than 10 percent increase in overall CCS costs.57
Finally, international storage is the least economically viable option. Storage in Northern Lights would involve onshore and offshore transport and shipping, raising costs to between €95 and €105/ton for transport and storage.58 International storage for the Basque Country and Cantabria, therefore, would incur approximately two-and-a-half times higher transport and storage costs and nearly 40 percent higher CCS costs compared to an onshore alternative (Exhibit 5).
For the chosen emitters in the theoretical analysis, onshore storage costs would be between €10 billion and €12 billion over 25 years, with capital expenditure amounting to between €6 billion and €8 billion. If the EU carbon price rises to €140/ton by 2030, the funding gap could be between €3 billion and €5 billion.
The potential onshore CCS hub could accommodate seven emitters and a total capacity of 2.8 Mtpa, with capture costs ranging from €110 to €150/ton CO2. Connecting to the onshore storage site near Vitoria would require two pipelines of approximately 300 km and 90 km at an average cost of around €15/ton. When factoring in compression (approximately €10/ton) and onshore storage (approximately €10 to €20/ton), the transport and storage total costs would rise to between €35 and €45/ton (Exhibit 6).
Voluntary carbon markets offer a complementary approach for boosting additional decarbonization efforts
While certain CO2 emitters are mandated to participate in compliance carbon markets, such as the EU ETS, participation in voluntary carbon markets (VCMs) is entirely optional, offering an opt-in incentive for offsetting emissions (see sidebar “Voluntary carbon markets: Demand and supply”). In VCMs, developers voluntarily establish projects that either reduce, avoid, or remove CO2 from the atmosphere. These projects are validated and verified by independent bodies that ensure that the carbon credits represent mitigated emissions (one ton of CO2 removed or avoided equals one carbon credit). Developers then sell these carbon credits to companies or individuals aiming to offset their emissions.
Although VCMs are small relative to compliance markets (approximately 320 Mtpa worth of credits retired by VCMs versus 12,800 Mtpa covered by global compliance markets), companies face growing incentives to participate in VCMs due to the increasing pressure to meet clients’ decarbonization ambitions, opportunities to capture green premiums and additional revenue streams, and the increasing relevance of sustainability criteria in access to funding.59
Additionally, certain regions, such as California in the United States, allow companies to purchase carbon credits to offset a small portion of their emissions under their corresponding compliance carbon markets. Currently, companies in the European Union cannot offset their compliance requirements using carbon credits. However, the European Commission plans to reassess by 2026 whether CO2 removals may be accounted for and included in the EU ETS in the future.60 In that case, projects generating carbon credits (for example, CCS projects capturing biogenic CO2 or DAC projects) could find additional revenue streams from selling those credits.
Iberia can leverage its natural endowments to boost VCM projects in the region. It can rely on low clean energy prices due to its endowment of renewable resources that may help develop technology-based projects, such as DAC, which generate premium credits. Furthermore, it has accessible infrastructure to natural resources (such as forests and coastline) that offers opportunities for CO2 removal projects, including reforestation, CO2-free agriculture, and marine regeneration. Finally, its skilled workforce in science, technology, and engineering, combined with industry presence, professional networks, secure expertise, and safeguard innovations, creates a competitive environment for the development of local carbon credit projects.
In Spain specifically, there are already multiple projects focused on absorbing CO2 from the atmosphere or avoiding its emission, particularly through reforestation and blue carbon. The Spanish government has mapped more than 900 projects across the country with an expected absorption potential of 7.21 million tons of CO2 through the entire lifetime of these projects.61 Additionally, there are four blue carbon projects (aimed at conservation and restoration of coastal and marine ecosystems, such as mangroves, seagrasses, and salt marshes) mapped in Andalucía. These are expected to absorb more than 100,000 tons of CO2 over the projects’ lifetimes.62 Finally, there are other innovative efforts in progress, including CO2-free agriculture programs, advanced solid waste management, and DAC, among others, although these are still in the early stages.
Charting the path forward for CCS: Overcoming challenges and unlocking potential
The development of CCS projects in Spain and Portugal face two main challenges that may hinder their success, especially as first-of-a-kind initiatives in Iberia.
Absence of clear legal framework. The limited tailoring of the CCS Directive and the lack of complementary regulation on permitting governance has led to reliance on regulations from other activities (such as the Mining Law 22/1973 in Spain), which can complicate and delay permitting processes. Additionally, little public involvement (for example, the lack of a CCS strategy and road map) can cast doubts on the approval of local storage sites and pipeline networks, both onshore and offshore, which could potentially force Spain to rely on international storage. This would increase costs significantly and potentially harm the economic viability of CCS projects in Spain.
Uncertainty about economic viability. CCS may be viable based on our cost analysis and current ETS price forecasts, but economics remain uncertain, driven by potential cost overruns (for example, project costs at Porthos have been reported to have increased to €1.3 billion from the original budget of €500 million) and the uncertainty regarding the evolution of carbon prices under the ETS.63 These factors make it challenging to develop a reliable business case and commit to a final investment decision for CCS. This uncertainty could impact the likelihood of these projects accessing traditional funding.
Despite these challenges, CCS remains a crucial tool for HtA industries to stay competitive in an increasingly demanding decarbonization landscape. Iberia must address these challenges for CCS to become a reality and to avoid the potential loss of competitiveness of the local HtA industry. This scenario would require efforts from both the private and public sectors, and could benefit from several unlocks aimed at addressing ecosystem bottlenecks and driving CCS development:
Reliable and adequate regulation. As seen in other countries, such as the United Kingdom, a robust regulatory framework can streamline the permitting process for CCS, eliminating uncertainties for developers and enabling local storage access to ensure cost competitiveness. This could be important in Iberia, given the estimates that international CO2 shipping would potentially raise costs by almost 40 percent.64 The United Kingdom may serve as an example of a transparent permitting process.65 With its structured and streamlined tender rounds, the country has already issued over 20 licenses for exploration and storage.66
Effective incentive schemes. Implementing incentives and support schemes, such as CfD and shared insurance coverage on leakage, can help mitigate risks for CCS projects and ensure their economic viability, despite the uncertainty of carbon price fluctuations. The Netherlands stands out for its effective incentive schemes, having developed a CfD program tailored to CCS.67 This program differentiates between ETS and non-ETS companies and considers all potential variations across projects, such as shipping versus pipeline.
Supportive public involvement. A public body with technical expertise can help coordinate and expedite the development of a CCS hub that is able to capture economies of scale, as seen in Norway with Gassnova or in the Netherlands with the public joint venture behind Porthos. Additionally, public support is necessary to strengthen knowledge, raise awareness, and foster transparent public debate on carbon management. Engaging with public authorities, project developers, and civil society at all stages—before, during, and after policy development and project implementation—can ensure the most effective and inclusive development for all stakeholders.
Effective private orchestration. Private stakeholders need to be aligned to optimize a potential hub network by focusing on end-to-end value chain costs, capitalizing on capacity synergies to support lower-scale emitters, and exploring green private financing alternatives.
As the European Union focuses on decarbonization, the HtA industries require special attention to reduce emissions while remaining cost competitive. CCS is already a robust process that can help these industries decarbonize. While the technology is relatively new, some European countries have already implemented regulations to develop it.
Iberia’s large potential storage capacity and concentration of industrial clusters makes it a suitable region for CCS for HtA decarbonization. By overcoming challenges, this region could become a key CCS player in the European Union, moving one step closer to its decarbonization goals.
